CTA Case No. 2949 (Decision)

r.IPO!SL10 or TB& r�UJLJPPl'NY � COURT OF TAX PPE.~t~ i'tf'ft1...ti!C ~l'"!'V CA.Rr1EN M� SORIANO, rep resented by A. SORIANO CORPORATION, Petitioner, - ,versus - C.T.A . C~SE NO. 2949 COMMIS~IONER OF INTERNAL REVENUE, Re.�sponden to X- - - ~- - - - - ---X DE C I S I 0 N In her income tax return for 1976 , which was filed on April 1 4 , 1977, pe:ti tioner Carmen M. Soriano, represented by the A. ~oriano Cor poration , r eported a gross income of ~9 1,961.40 , which in- cluded , among others, dividends receive'd from the Atla s Consolidated Mining; and Development Corpd'- . ration in the sum of ~84,247 . 00 and from which the amount of ~25, 274.70, or 30% thereof, was. withheld, Eemi~ted and paid by the latter to the Bureau of In terna l Revenue:. Howe\ler, the same return also shows that from her: g,ross income of ~91, 96.1. 4:0 , petitioner claimed a total deduction of ~98,805� .86, r esulting in a n et loss of ~6,844.46. Petitioner Carmen M. Soriano now seeks the refund of the sum .t of ~25,274.70, representing, the income tax withhe:ld at so urce on the dividends :rc:ec:eive:d fr om the: Atlas Consolidated Mining, and De�velopment Corporati on

DECISION - CTA CASE NO o 2949 - 2. - f or the year l9 76 o Pursuant to the: pr.ov i sions. of Sec:ti on s 29 2 a n d 295 of the. Nationa l I !l te:rn al Re~enue� Code , pet itioner fi led with respondent on April 21, 1 97 8 a writ te:n claim f oi: refund of the: amoun t of ~25 , 27 4. 70 ., There be:ing no acti on seasonably take~n by re: s:ponde~n t on the: said claim , peti tione:r ins.ti tuted t he present pr. oc:e~ding f o r the r.ec:over.y o f the income t ax with- he:ld on t he d i v ide~nd s. In rai sing the questi on of refundabili t y of th e~ sum of ~25,274.70 , petit.i oner c:omes�. to~g rip with the: c ontention th at she is a n on-I:es;ident alien engaged in trade: or business in t h e Philipp i nes , and under Sec:tion 5.3 (b ) of the. Na ti ona l Inte~rnal Revenue� Code , the dividends ar:e not subjec�t to with ho lding t ax. . Upon the other hand, quoting! the peJr:tin en t provision o f Section 22 of the same Code , which s t a t e�s : "x. X. X X. X. X x x. That for purpo ses of this Title, a non-:r.:e�s iden t alien i ndividual who s hall come to the Philippines and stay therein f br an aggregate per iod of mo re t han one hund red eighty days during an y calendar year. shall be deeme:d a non - re�s.ident alien, doing, business. in the Philippines, x. x x. " r esp ondent maintains tha t ,petitio ner f ai ls. to qualify as. a non-r.esiden t alien e:n g,aged in busines;s in the (

DECISION - CTA CASE NO. 2949 - 3- Philippine:s be'cause� no positive: evid:enc:e' that she had s .tayed i n the c:ountry for.� an agg:re�g,ate period of more than one: hundrerl eighty (18 0) _days. dur ing1 the calendar: yeatr 1976 has been presented. Moreo~er, respondent would argue that petitioner failed to show proof or: documentary evidence that she is actually holding~ or:� maintaining em office or a place of business in the Philippine s ; and the~ records reveal that she: did not incur busines.s expenses for office rental, salaries, telephone bills. and the like. (pp. 79-80, CTA rec:ord.s;. ) . This. Court realizes, as contended by respondent, that in an action for refund, the burden of proof is; upon th e taxpayer to e:s.tablish i ts r ig;ht to th e refund and failure: to sus.tain this burden is fatal to the action for refund. Howeve�r, respondent specifically and unequivocably admitted in his answer to the petition for review "that petitioner is a non-reside,nt u.s. c�itizen eng.aged in trade or business in the Philippines, repre sented in this claim by A. Soriano~o rp oration, a corporation duly organized and existing under and by virtue of the laws of the Philippines, with off ices at Ao Soriano Bldg,. , Ayala Avenue, Makat~ 1 Metr:�o Manila x x: x. " (pp. 1 & 23 1 CTA records.) Under Section 2 1 Rule 129 52 1

DECISION - CTA CASE NO. 2 94 9 - .4 - o f the Rules of Court, admissions made by the parties in t he pleadings, or in the course of the� t1r:ial or othe'r pr.oc:eedings. do not r.e:quire p.~roof and c:an not be� con tr.adicted unless p1re- vious ly .shown to have been made through palpable mistake. There� is nothing in the� re-cords whic:h would show 1 directly or indire:c:tly 1 that the admission of respondent that petitioner is a non- re:sident alien e:ng,aged in t1r:ade~ or bus:ines.s in the Philippines� had been made� thr oug,h palpable� mis.take. Fac:ts pleaded in the� a nswer are: �deemed admis.sions. of the defe:ndant who is; not p c:r mitted to con t.lc adict them, or subsequently take a: pos:i tion cont.radictory to or inconsistent with, such admis:sions. \Cunanan vs. Amparo, HO Ph i l . 227 a ) Again , as pointed out by pe~ ti tione r, respondent is. bound by the testimony of his own witness. Res.- pondent presented as. his. own witne:s.s MJ[. Nathaniel Guarin who categorically testified that pet.itioner is a non-~esident alien engaged in trade or business in the Philippi nes: (pp. 73-74, 97-98, 108 - ~09, t. s.� n. ) . Whe:n a party i n troduc:es. as ev idence the testimony of a person, he i s bound by all the tapt s conta ined there in .. (Moran, Comments on the Rules. of Court, 19HO Ectit1on, Vol. v, p. 66, citing

uECISION - eTA CASE NO. 2949 - .5 - 2 Chamberlayne, Modern Law on Evidence, Po 1606; 2 Wi9more~. on Evidenc:e, p. 579; Richard v. Morgan, J.O Jur. N.s. 55�9 1 5b4a). To say theTe:fore that petitioner Carmen M. Soriano is non-re�sident alien not engaged in trade or business in the Philippines in 1976 is to i ncur in self-contractic:tion. At any ra te�, sufficient evide'nc:e� was. presented to establish that petitioner, during the time mat- erial to this case, maintained and neld oftice at the J.Oth floor. cf the� A. Soriano Bldgo 1 Makati 1 Metro Manila, used in conducting her various business � activities in the Philippines as: J.. Principal partner of the Soriamont Invest- ment Company, a foreig,n partne:r.ship authorized -and actually engaged in trade or business in the Philip- pines; 2. ~rustee or off1cer of the Ao Soriano cancer Resea rch Foundation, Inc.; 3. Co-executor of the will of Don Andres ::;or.iano; and 4. Stockholder. of several domestic c:orpo- . rations, such as the San Miguel Corporation, Atlas Consolidated Mining & Development Corporation, Philippine Oi l Developmen~ Company, and other corporations manag,e:d by the A. Sorian o Co rpora t i on . 52 :1

DECISION - ~ TA CASE NO. 2949 - 6. - Having arrived at the conclus.ion that peti- tioner i~ a non-r.esiden t alien e:nglag,e:d in trade or. business. in the Philippines., the di:""Jidends of J;l84'1 2 47.UO r.e:ee~ ive:d by her. in 1976 fr om the Atlas Consolidated Mining and Devel opmen t Corpo ration are not subject to withholding tax. at source p ursuan t to Section 53 (b) .of th e Na ti onal I nterna l Revenue Codeo In ask i n g that petitione r' s claim for refund ot the amount of };125 ,2 14.70, which was withhe ld, remitte:d and paid by the� Atlas. c onsol1dated . Mining and Developmen t Corpo ration t o the Bure�au of . Internal Revenue, be denied, r e~spondent would seem to f all back, howeve r, on the proposition that peti t .i one r is subj e:c t to income t ax on her income aerive:d fr�om the following,: a. dividend income bo i nteres t income c. other income: - ,p roceeds of sale of fractional share~ of st.ock derived from sources within the Philippines because her claim of the .follo wing dedu c:t.ions : l o Interest expense a. Fi rst ~ational City Ba nk - ~22,62 7 .3~ b. A. Soriano Corporation - 29,13lo46 ~~~~z~~!:~~ 5.2 ��~

uECISION - CTA CASE NO. 29 49 - 7- 2. Loss ' Loss from partnership . Soriamont Investment co.- 25~ share in net loss - - ~~Z~Q~Z~Q~ were: a l l disall owed on the g1round that no sufficient proof or evidence was presented to support the alleged expense: or l o ss. In other words., re:sponden t would seem to imply that even it petitioner is a non-resident alien eng1aged in trade or busine:s.s within the Philippines, her entire net income ~.ec.e: ived from all sources within the: Philippines would be subject to the tax imposed by Sec:tion 2.l of the then in f orce National Internal Revenue Code: pu.1rsuant to Section 22 (a) .of the s.ame Codeo The: case: would thus turn upon the que�s.tion whether pe�ti tioner 's claimed de:duc:tions. for inter.e�s.t. expens:e of ~~1, 7 52.83 and loss of ~47 1 047.03, or a total of ~98,805.86 , should be disallowe'Ci on the g1round that no adequate record was presented to support the s-ameo Revenue Regulations No. 2 require that any claim for deduction must be substantiated, when requested by the Commissioner of Internal Revenue, by record showing in detail the amount and nature of t he~ expenses incurred,. (See Section 66, Rev � .Keg:s. No. 2 . ) . While the me:re alle-g,ation of the

Dt:CI:iiON - CTA CASE NO. ~ 94Y - 8- taxp ay er that an item of expense is o rdinar y and ne'cessar2:' does. not. jus-ti fy i ts deduc.tion (De Vera v s . Colle:ctor of I nter. nal Reve,nue 1 CTA Case' No. J.64 ', March 23, 195.9 ; Basilan Estate~s , Inc. '\PS., c ommissioner of Internal Revenue , L-22 494 , s-eptember 5, 1 96 7, ~1 SCRA 1 7 ; Atlas Consolidated Min ing1 & Develop- men t C o ~poration vs. Commissioner of Internal Reven ue, L- 269 2 4 , J anuar y 21, 1981, 10~ SCRA 246) ~ it see ms settle d that wher e a taxpayer claime-d ded ucti ons ,. for certain e xpenses but n~ rec ords are av-ailable, v the deduct.ion may be� allowed cons ide r ing1 the tes.ti - mon y o f the accountant as to the nature of� those expenses, whic h tes ti mony is not \~ont radi~ted by the Gove.rnment. (Basilan Estates vs. Commis-~ioner: of I Internal Revenue , SUP@�) . And disallowin9 amounts claimed for deduction merely because there is no ctvailable d ocume'ntar y evidence whi c�h will es-tablish the pr.e�cise a mount beyond a reasonable� do ub t ignores commonly re~o91nized business pract ic:es- as we l l as the fact that proof may be establisherl by credible ora l test imony., ~ o h an vs. Commissioner of Internal hevenue, 39F. ~d 540, cited in Visayan Cebu Te rminal vs. Collector ot In~ernal Rev,enue, L- 1 ~7 98 , May 30 , 1960, 108 Phil o J2 0 ; Gancayco vs. Collector of I nterna l Revenue, L-1332~, April 20, l9 bl, 1 SCHA 52 G

D.I.!;C II:iiON - C~A CASE NO. 2 949 - 9- 98U ~ Zamora vs. Collector of Internal Revenue, L-15l80 ~ 15289-~ 0, May 31, 1963, 8 SCRA 163.) Here in the case at bar, petitioner � ~ claimed ueductions of interest expense: of E!51,758 .8 3 and --- Loss of P47,047.U3 were not only substantiated by adequate reco rds showing in detail the amoun t and nature of the deductions but also established by credible oral testimony which was not contra- dieted by the Government. Nathaniel GuaJrin,supeJrvis.or of the accounting depaJrtment of the Ao Soriano Corpo- ration, te:s tifi ed that the above i nte�Jre�st expense � of petitioner arose fr om loans s .ec:ured by h e:r fro m the� First National City Bank (pp. ll-22, 33-3.5, ~9-101, 111-~ 15 , 122- 123, t .s.n. ) and the A. Soriano ~orporation (pp. 21-22, 35-~7, 60-~4 , !02-1 03 , 117- llB, t.s.n . ) ~ The loan from the First National City Bank was evidenced by the debit and cJredit note~ issued by the said bank showing payments of 1nterest by petit.ioner (Exhs. E-2 - a; E-2-b; E-2-c:; E-2-d; E-2.- e; E- 2-f & E-2-g,) ' � while the loan f rom the A. Soriano Corp9ration was evidenced by its certification that it received from petitioner the amount of P2 9, 131.46 es interest on her loan (ExhoJ) ~ as well the ag:ree ment as to the .rate of interest chargeable thereon (Exh. P) ~ In accordance with 52 7

DECISION - CTA CASE NO. 2949 - 10 - a subpoena ad test ifi candum and subpoena duces. tecum, witness Nathaniel Gua.rin brought before this Court books of accounts of pe'ti tioner Carmen M. $o.rriano for the� year J.97o, such as disbursement book, vouche�rs on interest payment, c:ash receipts oook, jou.rrnal book and g,eneral ledger e'Jidencing petitione~r's loans and inte:rest payments.� (pp . 39- 41, CTA records . ) It may be noted that at the time material to this case , no distinction was made be�twee:n interest on business de'bts. and inte- rest on personal debts to justify a deduction of interesL (1955 PH Fed. Taxes, Pur . 13 , UOO.) The loss of ~47,047 . 03 cl ai med by petitioner as deduction fr om her 1976 gross income represented her share in the net loss of the Soriarnont Invest- men t Company as one of the principal partners thereof. The Soriamont Investment Company is a foreign partnership organized and existing under the laws of California, u.s.A., with Andres Soriano, petitioner Carmen M. Soriano, Jose M. Soriano and Andres Soriano, Jr; as partners., (Exhs. D & D-2; pp . 67- 68, t . s.n . ) It is authorized to do busi- ness in the Philippines, thru its agent, t~e A� . Soriano Corporation. (Ex~s. D1 D-1 to D-6, 0-l; pp. 23- L_4; 41, /4-/5 & 19 1 98, t.s~.n o) In its

DECISION - CTA CASE NOu ~94~ - ll - i nccrr.e tax return for. 1976, the Sor iamont Invest- ment Company reported a net loss from it ~ operations of Ell88,188ol0. (Exhs. F , P-1 & F-2.) Since unde r the partnership agreement (Exhs. D-2) _petitioner ' s snare in the profit or loss is 2~%, she claimed as deduction for 1976 her share in the loss amount- ing to E14 7 ,047.03 or 25% of Eil88,188.10. The share of each partner in the inc:ome of the partnership, whe�ther distributed or not, is taxable to him, while the loss sustained by the partnership is deductible by each partner to t he exte�nt of his � share therein. (Sec. 26, National Internal Revenue Code ; Sees. 22-23, Revenue Regulations No. 2; Tan Guan vs~ Court of Tax Appeals, L-23676, April ~7 , 1967, 20 SCRA 903.) In deducting the amount of P47,047.03 representing her 25% share in the net loss. of the s .or iamon t Inv e stment. Company, pe ti� . tione r merely picked up her shar~ in the net loss of the partne~:ship which had already been recognized and admitted by respondent when he refunded the income Lax paid by� it for the year 1976 in the amount of E123,217.00. (Exh. F .) . It is thus clear beyond doubt that with a gr os s i ncome of E191 , 95�1.40 fo r the� y ear 1976 and a total allowable deductions of P98,805.86 (interes t

DECISION - CTA C A~E NO. 2949 - 12 - expense of ~51,758o83 and loss of ~47,04 7. 03, or a total of ~98,805.86 ) ~ petitioner Carmen M. Soriano incurred a net l oss of ~6,844.46. Accord- in gly , the withholding and payme:n t of income tax in the s um of ~25,274.70 for 19 76 i s erroneous. WHE.REFORE, respondent Commissioner of I ntern al Revenue is hereby ordereu to refund to petitioner Carmen M. Soriano the amount of ~25,274.70, repre - sent.ing err:oneously collected i ncome tax at source for 1976. Without pr onouncement as to c:osts . ::50 ORDERED. Quezon City, Met.ro Manila, December 27, 1982� AMANTE Presidi WE CONCUR: .! >/ /' CO~STANTE .'RoAQUIN ,/ >As soc ia te Judge -/7J ;;:[hJl/~/ . 5) z. REYV Associate Judge 53 (